Tag Archive for: Attorney

does IRS wants to look at your bank account?

Bank accounts serve as a tool for personal and private finances. In the past, bank accounts were not typically investigated or monitored by the Internal Revenue Service (IRS) unless a taxpayer experienced an audit. However, following a proposal by the Biden Administration, IRS can now look into your bank account. 

Watch our full video below for a detailed explanation of why IRS wants to look into bank accounts.

Read on to learn why IRS wants to look into your account, what information they’re looking for, and how this financial reporting will work.

Why Does IRS Want to Look into Your Bank Account?

IRS’ goal is to find account holders who use personal checking accounts to avoid paying full tax amounts and narrow the tax gap.  

What is the Tax Gap?

The tax gap is the difference between taxes owed and taxes collected. According to the U.S. Department of Treasury, the tax gap amounts to approximately $600 billion annually and has exceeded $7 trillion in unpaid taxes over the last decade. The U.S. Department of Treasury also claims the wealthiest one percent of Americans alone evade over $163 billion in taxes each year.

How Will This Financial Reporting Work?

According to the U.S. Treasury, banks and financial institutions will include “just two additional numbers to the information that they already supply to taxpayers and the IRS.” 

What Information Will IRS Look At?

The “two additional numbers” IRS is asking banks and institutions to report are:

  1. The total amount of funds deposited into the account over the course of the year
  2. The total amount of funds withdrawn from the account over the course of the year

How Will IRS Use This Financial Information?

IRS will compare the annual tax flow of account holders against their tax returns to determine if the account holder is likely paying the full amount of taxes or if the account holder should be audited. 

What Other Financial Information Will IRS Look at?

The Treasury claims “the scope of this information sharing is extremely limited.” Further, the Treasury reiterates that banks will not share individual spending or transactions, nor will IRS have the ability to track such transactions.

In short, no individual spending information will reviewed–only the total sum of deposits and withdrawals. 

What Other Information Does IRS Already Have Access To?

The IRS obtains information on taxpayers from sources such as:

  • Filed tax returns
  • Third parties, such as the Social Security Administration
  • Information statements about the taxpayer under their Social Security number, such as W-2 forms and Form 1099

From this information, IRS likely already knew about each taxpayer’s accounts,  but will now know what funds are going in and out of those same accounts as well.

What Are the Risks of IRS Looking into Bank Accounts?

IRS looking into personal checking accounts can lead to additional and unnecessary audits as well as violate bankers’ privacy.  There are multiple explanations for why money coming into your bank account–whether business or personal–is not income.

How Can IRS Looking into Bank Accounts Affect Small Business Owners?

Banks reporting deposits and withdrawals to IRS may lead to additional audits for small business owners (SBOs)–even if the SBOs are paying their taxes fully and correctly. 

For example, a small business owner may deposit $1,000,000 into their bank account but only report $600,000 of income. The bank will report the $1,000,000, exposing the difference between the original deposit and the amount the SBO reported; this difference could potentially lead to an IRS audit as the IRS will want more information on the unreported income. More specifically, IRS will want to know if the SBO should be paying taxes on the $400,000. 

However, there are several reasons that an SBO may deposit income and not report the full deposit amount, such as:

  • There may be non-income items deposited into the account. 
  • The SBO might have taken money from a credit line, a loan, or transferred money between accounts.

How Is This Financial Reporting Different Than IRS Audits?

During our client’s audit processes, our office performs a bank deposit analysis. We’ll add up the total deposits for the year, review the total cash flow, and compare that to the tax return. If these two figures are off, we’ll meet with the client to discuss the discrepancies and ask them to justify whether each deposit is or is not income. 

In an audit, IRS will conduct a similar analysis. 

However, the difference is that IRS only had access to this information in an audit instead of on a day-to-day level. IRS shouldn’t have access to the banking information of all Americans with accounts in the United States; it is an unnecessary invasion of privacy. 

Do you know what to do if your business’ tax return was flagged for an audit by IRS? Learn more here.

What should you pay for a tax attorney?


How much should you pay for a tax attorney? It depends on the issue you’re facing. If you’re a business owner, you can expect to pay a little bit more because these cases tend to have more complicated issues. Sometimes, cases can cost $2,000 to $3,000, but it depends on the complexity of the case itself. 

A sole proprietor receiving a letter from the IRS two years after filing a return may be able to work with their CPA, instead of a tax attorney. However, it depends on the amount of tax liability. If the potential tax liability is not more than $40,000, it makes more sense to try to resolve it with your CPA first. 

Now, there can be a lot of tax legal issues that come along with an IRS audit, but if it’s simple enough, your CPA should be able to resolve it. At Milikowsky Tax Law, we do work with a lot of CPAs for these types of cases. Many times, the CPA may do the majority of the work, and we provide the legal support, depending upon the technicality of the issue. 

Case Study 

Recently, we worked with a client— let’s call her Sandy— who worked as a W-2 employee in a hospital and also claimed to own a business. On that business, the client reported $100,000 of gross income and about $250,000 of expenses. Resulting in claiming a loss of $150,000. 

After filing these taxes, the IRS sent the client a letter explaining they didn’t believe the return and requested an interview. Sandy brought the letter to our office before she became a client asking for our help. 

During our conversation, I asked her what exactly she did for work because the claim reported her business as telephony, and that she is a W-2 employee at a health organization. Neither form of employment is related to each other. 

Sandy explained she invested some money in a foreign country with a man who she didn’t know too well. He would tell her that she made $100,000 in a year but would ask her to wire money to him for expenses. He explained, “we spent $250,000 so you owe me $150,000”

When IRS reviewed her filings, the agency wondered how the client was losing money every year working in telephony. Upon speaking with the IRS agent, our firm’s biggest concern became the 15-year history of tax filings reporting a loss of money.  The client essentially zeroed out her taxes through her paychecks.

What appeared to be a very simple issue in the beginning, with not a lot of value, became a bigger concern as we uncovered its complexities with the IRS agent assigned to her case, who we’ve worked with numerous times on these types of cases. 

Should I Hire an Attorney?

When looking to hire a tax attorney, it’s beneficial to call the attorney to receive initial ideas and suggestions. Any attorney who is worth their weight in gold can talk through the issues quickly, and maybe even look through your return. 

Our office can assess a case in about five minutes and let potential clients know if their case is one that needs the support of an attorney, or if their CPA can handle the case instead. 

Important factors to consider for potential clients before hiring an attorney are:

  • Do you understand what documents the IRS are looking for?
  • What are the claims? 
  • What are the issues? 
  • What years are IRS auditing? 

More simple cases include a person facing an audit who failed to report income from a distribution. In these cases, the person facing the audit will most likely pay the additional taxes required. An attorney may be able to help waive the penalty if it’s high enough, but that would be found upon an initial assessment with the attorney. 

Keep in mind the fees you, as a potential client, are willing to pay an attorney in addition to audit finding fees or penalties owed. The goal of hiring an attorney is to hopefully pay much less, a fraction of what you could potentially owe, and get a result. Remember that attorneys are not able to guarantee results, however, anybody with significant experience will be able to tell you the likelihood of success. 

Questions about IRS? 

IRS performs audits randomly and also when flagged through tax filings. They require important documentation, organization, and meetings with the IRS auditor. 

Read our article that answers the most common IRS audit questions here


What should you consider before hiring an attorney

John Milikowsky, Founder of Milikowsky Tax Law, often hears the question: “why do you do what you do?”  and “why are you a tax attorney?” To him, the answer is simple, “I really enjoy keeping businesses in business.”  

Listen to John Milikowsky, founder of Milikowsky Tax Law explain why he is passionate about defending businesses in IRS, EDD, SBA, and other government audits. 

Why Tax Law?

John saves businesses as an attorney; whether it’s defending an IRS or a State of California Audit, defending somebody in a criminal case involving a tax issue, or helping a CPA support their client in an IRS or EDD audit. 

“I really enjoy doing this because, at the end of the day, we’re here for one purpose- to help businesses and to keep people’s livelihood intact.”  If/when the government challenges a business, John and his team defend the client and the individual properly, so they can keep their livelihoods. Their diligent work, attention to detail, and passion for the job helps businesses continue doing what they’re passionate about.

Entrepreneurial Operating System (EOS) Implementation 

John consistently searches for ways to streamline operations in his own business. He understands that doing so produces better results for clients. Moreover, it keeps them happy

In 2020, Mr. Milikowsky began Entrepreneurial Operating System (EOS) implementation. This system takes apart each task that needs to be done for the clients and for the business and then allocates those tasks to the employee who has both the passion and competance for completing that task.

The office at Milikowsky Tax Law has seen extraordinary results internally after the implementation of EOS. Furthermore, the client cases have seen even better results. The office works more efficiently, and employee satisfaction reflects these positive changes. In short, the clients and employees at Milikowsky Tax Law are happy. 

Read our article to learn more about John Milikowsky, his journey to becoming a tax attorney, and meet the members of his team at Milikowsky Tax Law.

Additionally: As an entrepreneur, John is involved in the Entrepreneurs Organization (EO). The organization supports hundreds of people worldwide divided into several different chapters. The forums that create each chapter are divided into various companies that work in entirely different spaces. John’s forum is composed of an entrepreneur who makes HR posters, another who makes fish tanks for larger aquatic centers like SeaWorld, and more. 

Oftentimes in his EO meetings, John hears, “Wow! Tax is just so boring.” But in reality- it’s not. John views tax as a means to get a result. His office assists clients by either getting out of a criminal indictment or uncovering that they, in fact, do not owe the additional taxes. 

As a business owner, being clear in your processes and objectives helps you serve your clients better.  Through implementing EOS (Traction) and participating in peer-to-peer advisory groups like EO, the team at Milikowsky tax law is always getting better. That means happier team members, happier leadership and happier clients. everybody wins.

John Milikowsky is a local San Diego Tax Attorney

Meet John Milikowsky 

John Milikowsky is the owner, founder, and managing attorney of Milikowsky Tax Law in La Jolla, CA. As an attorney, he is passionate about representing business owners in the face of government audits, specifically EDD, IRS, SBA, and CSLB audit cases.

A former business owner himself with 28 employees, multiple storefronts, large inventory, and international trade, John understands how to advocate for his clients in the face of a government audit because he knows the day-to-day runnings of a business. 

According to Mr. Milikowsky, if a government agency is going to “select your tax return for an audit, you need someone who is going to understand your business operations and understand how your financials are put together.” 

In 2015, John was selected by the Union Tribune’s San Diego Reader’s Poll as one of the top five best tax lawyers in San Diego. He is known for his relentless defense of each client in federal and state criminal investigations to protect his client’s civil rights and provide financial security. Tax law cases John can represent include: 

  • Sales tax audits
  • Payroll tax audits 
  • IRS tax audits 
  • International tax matters
  • Criminal tax matters 

Learn more about John in our video below:

The Golden Screw Story

John’s passion for working meticulously through his client’s audits was seeded back in 1987 as a young boy. Growing up, John spent his summers sitting in the back storeroom of his parents’ lighting store, sorting an oil barrel filled with a variety of different screws each day.

At first, this mundane duty opened the floodgates of questions for young Milikowsky about why he had to sort screws instead of partaking in more fun activities. Although he never made an inch-worth of progress sorting the screws in the barrel, he made a choice in the middle of the summer to channel his negative emotions about sorting the screws into sorting them well in fast.

Looking back, John remembers thinking, “I could have been furious, resentful… victimized by the mundane monotonous task set in front of me… or, I could do it well and fast. I could be the best at screw sorting… It’s possible that hindsight has put that perspective on my young experience…” 

He continues, “But certainly, as I navigated my first few years of audits with my Tax Law clients, as they handed me THEIR metaphorical oil-barrels filled with numbers… profit and loss statements for three, four, five years, receipts faded with time and transactions whose recipients had long gone out of business, I came to appreciate that summer of sorting. That training in detail work, that patience for sifting through the most minute details.

I discovered that my passion was for the detective work it took to uncover the one piece of information that made all the rest of a company’s business narrative fall into place. I realized it was like finding a needle in a haystack, a diamond in ice… a golden screw…

And that through that kind of attention to detail, I could help people in their moments of crisis, at their crossroads. Through diligence, expertise, and attention to detail, I can help save people’s businesses, their families, and often, their sense of humor.”

Meet the Team at Milikowsky Tax Law

Our team here at Milikowsky Tax Law is the bedrock of our firm. Every member is equally important regardless of their job function.

We are former business owners and managers, which gives us incredible insight and experience to understand the internal and external workings of your business to provide relentless, effective representation in all tax matters.

As a dedicated office, we will be with you every step of the way, scrutinizing the details of your case and strategizing on effective solutions.

We are here to help you and your company resolve an IRS or EDD audit, defend a criminal tax investigation, minimize your risk of being audited, or help reduce a tax balance. With hundreds of completed cases behind us, we know how to navigate the world of tax law expertly and smoothly.

The Milikowsky Tax Law team has also developed a proprietary audit metric technology to help us get to the bottom of any tax issues. With our help, you’ll never have to worry about tax season again.

We pride ourselves in being:

  • Experts
  • Navigators
  • Personable 

Watch our video below to know our team members!

Meet Lauren Suarez 

Lauren is a Senior Associate Attorney here at Milikowsky Tax Law. She received her Master of Laws – LLM, Tax Law/Taxation from the University of San Diego.

In our office, Lauren has worked for almost two years with personal and business tax controversy issues for government agencies such as IRS, FTB, CDTFA, and EDD. She also assists with financial planning and incorporation for domestic and international clients.

Meet Meghan Monte

Also known as our office’s EDD queen, Meghan is another integral part of our team. She graduated with a Bachelor of Business Administration, Finance, and Entrepreneurial Studies from Rider University.

At Milikowsky Tax Law, she has worked as a paralegal and financial analyst for over three years. Day to day, Meghan is in charge of financial analysis and setting up EDD audits.

Meet Solin Zora 

Solin has worked for our office for the past two years as a Senior Client Services Assistant. She received her bachelor’s degree at San Diego State University. 

Solin says she feels “appreciated and respected for what I bring to the firm. The flexibility to attend to family matters if necessary and the encouragement to come up with my own ideas and to provide input to the team is very important to me. We have a great, supportive team that makes work enjoyable. At Milikowsky Tax Law every day is different, and it is a constant adventure!”

Visit our page here to learn more about the team here at Milikowsky Tax Law. 

The team at Milikowsky Tax Law is fully prepared to help protect businesses facing government audits.

What do you need to know about California Franchise Tax Board


California residents and business owners in the state who are audited by IRS have a responsibility to report their IRS audit findings to the California Franchise Tax Board.  While IRS will send the results of your audit to the state agency, it is in your best interest to self-report the results of your audit and prevent the possibility of a CTFB review of your federal audit results. 

Typically, Internal Revenue Service (IRS) audits back three years, but that time frame can be extended under various circumstances. In California specifically, IRS has an unlimited time frame to audit records if:

  • You never filed taxes.
  • Tax forms are found.
  • Tax forms are found incorrect. 

Simply put, if IRS wants to extend an audit timeframe, they can and will find a way to extend the audit time period. 

What is the role of the California Franchise Tax Board?

Franchise Tax Board (FTB) collects the state’s personal income taxes and can audit back four years of tax returns. According to the FTB, their mission is to, “help taxpayers file tax returns timely, accurately, and pay the correct amount to fund services important to Californians.” 

If an IRS audit assessment concludes with findings of an underpayment, there’s more to be done for the audited party than simply agreeing and paying fines. After an audit, CA Franchise Tax Board (FTB) must be notified of the claims within six months. If the agency is not notified, they will find out, it’s just a matter of time. It could take a couple of years for FTB to find they were not notified of IRS audit findings. 

While IRS will report audit findings to FTB, the agency is severely backlogged and often does not report the results of an audit within the 6 month window. It is in a business owner’s interest to self report because the state agency will re-open the audit to ensure that they were not shorted in the audit collection.  By reporting your audit findings you can save yourself time and effort of another review of your tax filings. 

Failure to notify FTB within the six-month time frame does not terminate the California Statute of Limitations. This means FTB no longer has a limited time frame to initiate legal proceedings to investigate your case. Legally, FTB can send tax bills to your business 4 or more years later if they are not notified within the six-month window. 

CA FTB can return years later to examine income assessed during the past IRS audit, and carry it over as money owed to the State of California. Notifying FTB within the six-month window of an IRS audit closure ensures you don’t waive any potential rights you have to petition or fight that assessment. 

The benefits of notifying FTB of IRS audit closures are: 

  • Even if you do lose with the IRS  you potentially could provide documents and work through those issues with the FTB. 
  • Penalties and interest accrue over time. Assessing if you really think you owe early on helps avoid further costs. 

Best practice during audits is to find a certified tax attorney to represent you. If either you or your attorney receives notice from FTB within six months, or even if you don’t hear from FTB, you can file an amended return or notify the agency and file a petition to dispute results during IRS audit findings. 

If FTB requests an audit extension, agreeing to the requested extension looks better and gives them less reason to think there is fraudulent or suspicious activity.  Denying an extension of time request can actually raise suspicion or trigger assumptions even if there isn’t any suspicious activity occurring.

FTB and IRS audits are conducted in a very similar way. After audit findings, you can dispute results with the California Office of Tax Appeals (OTA). Appealing with FTB themselves is more difficult. 

Learn more about California Franchise Tax Board in the full Forbes article below. 

Article Review: Tougher than IRS? California Franchise Tax Board

“When it comes to taxes, most people think about the IRS. But if you live or do business in California, state taxes are a big piece of what you pay. California does a good job of aggressively drawing people into its tax net of high individual (13.3 percent) and business (8.84 percent) tax rates. Add the state’s notoriously aggressive enforcement and collection activities, and it’s a perfect storm.

The state’s tax system is complex too. Rather than adopting federal tax law wholesale like many states, California’s legislators pick and choose. California adopts some federal rules but not others, so its tax law has many nuances that do not track federal tax law. Even California’s tax agencies and tax dispute resolution system are unusual. Combined with its unique tax statute of limitations, the situation can be downright scary.

Take California’s long tax audit period. The basic IRS statute of limitations is three years. In some cases, the IRS gets six years, not three. But barring those kinds of exceptions, the IRS usually has three years once you file a return to audit. The California Franchise Tax Board administers California’s income tax.

The FTB gets an extra year, so it has four years, not three. That sounds simple, just an extra year, but not so fast. Say that you are involved in an IRS audit, but the IRS has not yet issued a notice of deficiency (also called a 90-day letter, which must come via certified mail).

You may want to drag your feet in the IRS audit, to try to put you outside California’s four-year reach. Hey, with a little delay, maybe you can outrun California’s four-year statute, you might think. Will that protect you from California’s follow-along ‘‘me, too’’ request for money?

Unfortunately, no matter how long your IRS dispute goes on, California can always piggyback and collect its share. Several things can give the FTB an unlimited amount of time. California, like the IRS, gets unlimited time to come after you if you never file an income tax return.

The same goes for false or fraudulent returns. Those are obvious, but there are other dangers, too. In some other, less intuitive cases, California also gets unlimited time to audit.

Suppose that an IRS audit changes your tax liability. Perhaps you lose your IRS case, or you just agree with the IRS during an audit that you owe a few more dollars. You might simply sign and send back a form to the IRS. In that event, you are obligated to notify the California FTB within six months.

If you fail to notify the FTB of the IRS change to your tax liability, the California statute of limitations never runs. That means you might get a tax bill 10 or more years later.

Yes, it happens. California’s FTB often comes along promptly after the IRS to ask for its piece of a deficiency. But regardless of whether California gets notice of the adjustment from the IRS, California taxpayers must notify the FTB and pay up. If you forget, they usually find you at some point. This coattails concept in California law applies to amended tax returns as well.

If you amend your IRS tax return, California law requires you to amend your California return within six months if the change increases the amount of tax due. If you don’t, the California statute of limitations never expires.

With all of those rules, should you ever voluntarily give the FTB more time to audit you? Surprisingly, yes. Again, the basic rule is that the FTB must examine your tax return within four years of when you file.

But like the IRS, the FTB sometimes will contact you, asking for more time. The FTB may send a form, asking you to sign it to extend the period of limitations. This part of California’s system operates pretty much like its federal counterpart.

Some taxpayers just say no, likening an extension to allow the government more time to audit to giving a thief more time to burglarize your home. But with the IRS or FTB, saying “no” usually triggers an assessment, generally based on adverse assumptions. So, you should usually agree to the extension, which you may be able to limit to specified tax issues, or to limit the added time.

How about California audits and tax disputes? They tend to be harder to resolve than IRS ones, on average. There are lots of taxes too. California has income taxes, franchise taxes, sales and use taxes, property taxes, and excise taxes. There are nexus issues, withholding taxes, tough residency rules, and more. If you have an IRS dispute, you can fight it administratively with the auditor and at the IRS Appeals Office.

If necessary, you can go to U.S. Tax Court, where you can contest the taxes before paying before a judge who decides only tax cases. Alternatively, if you are willing to pay the tax first, you could proceed to the U.S. Court of Federal Claims, or U.S. District Court. Many states have a state tax court, but California does not. For decades, it had the State Board of Equalization (SBE), a five-member administrative body—the only elected tax commission in the U.S.—that functioned much like a court.

It was a quirky and controversial system. But all of that changed in 2017 when California legislators enacted the Taxpayer Transparency and Fairness Act of 2017, which created the California Office of Tax Appeals (OTA). The OTA has jurisdiction for appeals related to taxes administered by the California Department of Tax and Fee Administration (CDTFA) and the Franchise Tax Board (FTB). That includes personal income taxes, corporate franchise taxes, sales and use taxes, LLC taxes and fees, even gas tax and other excise taxes.

But before you get to the OTA, you’ll be dealing with California’s tax agencies, either the CDTFA or the FTB. Both have audit processes, and both have administrative processes that allow taxpayers to resolve differences over the proper assessment of tax and the imposition of any penalties. If your audit is with the Franchise Tax Board over your income taxes, the process isn’t too different from federal. The auditor will eventually write up what he or she thinks, and most likely will propose some additional taxes.

If you disagree, you should write to the FTB and go through the FTB’s appeals process. But compared to the IRS Appeals Office, the FTB’s appeals process does not seem to resolve too many cases, so you may end up having to go to the OTA. The FTB also has programs that allow settlement, offers in compromise, and payment plans.

However, once again, those generally do not work as well as their IRS counterparts. In the event a dispute persists after the CDTFA or FTB make a final tax determination, you can appeal to the Office of Tax Appeals.

The OTA is an independent office that is separate from the state’s tax agencies. The OTA is dedicated solely to the adjudication of California tax disputes. An appeal to OTA presents the final opportunity for taxpayers to resolve their tax disputes with the state’s tax agencies administratively, without going to court.

Appeals may be made by a letter request to OTA, accompanied by any supporting documents. You can ask for an oral hearing, which is usually a good idea. You can even bring witnesses who can testify before the OTA.

Prior to the hearing, taxpayers should provide all relevant documents to OTA and may ask, or be asked, to participate in a pre-hearing conference. Each tax appeal is heard by a panel of three administrative law judges (ALJs), each of whom has significant experience with tax law.

One ALJ will be designated as the lead ALJ for the purposes of the hearing, but every panel member will participate equally in the hearing, deliberations and decision. Generally, the ALJ panel will prepare a written decision within 100 days of the hearing, along with information about further steps that may be taken if the taxpayer disagrees with the OTA’s decision.

If you do not agree with OTA’s decision on a case involving a tax assessment, you can pay the tax liability and then file a claim for refund with the FTB. If the FTB denies your claim, you can file an action against the FTB in California Superior Court within 90 days of the denial of your claim for refund.

If you do not agree with OTA’s decision on a case involving a denial of a claim for refund, you can file an action against the taxing agency in California Superior Court within 90 days of OTA’s decision becoming final. All actions filed in Superior Court are reviewed de novo by the court, rather than being based on the OTA decision. Cases coming out of the CDTFA follow the same procedure.”

Learn more

Have you received an audit letter from CA FTB or IRS? Learn more about what your audit response letter should include, tips to navigate a response letter, and what you should and shouldn’t do in this article, “How to Respond to IRS Letter 6323.”


What is the California Franchise Tax Board?


what is the process of an edd audit

If your business is experiencing an EDD audit, it’s important to know what to expect. Founder and managing attorney at Milikowsky Tax Law, John Milikowsky, breaks down the EDD audit process and the frequently asked questions that come with an EDD audit. 

What you can expect from us, whether you have a balance owed to the IRS or the State of California, an EDD audit, or a criminal matter, is a dedicated and passionate team of people who have a lot of expertise to help resolve your issues. Our process is very simple, but it’s very different from many other law firms.”

What is the EDD audit case process at Milikowsky Tax Law?

“We don’t simply submit records to the government. We analyze everything. We use a lot of data analytics to really understand your business. A lot of us, including myself, have run companies before, so we understand what you’re going through. 

We have a lot of business experience. We know exactly what to look for, and we can anticipate the questions the government’s going to ask and we’ll build strategies and defenses in advance.

Once we’ve looked at all your records and identified potential issues, we identify strategies to navigate around them. At that point, we execute on our findings and work toward a resolution for your case.

EDD Audit Step by Step Guide

If you are being audited by EDD, you will receive a letter of inquiry.  Upon receiving this letter, the clock starts counting down.  You have a limited about of time in which to respond.

Our process begins with an interview, in person or over Zoom in which we get a good understanding of your business.

We gather documents to begin to analyze everything.

  • Your accounting records
  • Your transactional documents
  • Interviewing your workers, 
  • Interviewing other business associates

After our internal analysis, we give you a debrief and provide a roadmap of how the case will likely proceed. 

Once we collect and analyze your information, build the narrative around why your contractors are correctly classified and how your business is structured, we begin to communicate with the government. 

Are All Audits the Same?

Whenever an audit is initiated, the audited party will receive a letter from the government requesting records for a “routine investigation”. In the case of EDD audits, the process is usually initiated by a red flag that you have misclassified your workers. Some of the ways the agency can be alerted to this are:

  • A 1099 contractor filed for unemployment
  • A competitor raised a complaint
  • You were subject to a random site sweep by EDD or Contractors State Licensing Board (CSLB)
  • Your payroll records did not match your IRS filings and the agencies communicated.

How is an EDD audit case resolved?

Edd audits require a lot of negotiation and communication because each business is structured differently, workers perform different jobs and the rules from classification have changed even within the 12 quarter audit period as it stands in Q4 of 2021. 

The final resolution comes in the form of a letter from the government that say either there is nothing owed, you owe fees penalties and back taxes or, there was an error in your favor. 

What Every Business Owner Needs to Know:

Starting a business rarely begins with a strategic checklist of all of the resources necessary to run and scale successfully. Rather, many, if not most businesses start because the founder has a passion or skill that is exceptional and in-demand and they grow from there.  Because of this, many business owners find themselves at strategic points in their growth with gaps in resources that are easily avoidable with a comprehensive simple checklist of what every business owner needs to know. 

Take stock of the resources you currently have and compare them to this checklist to see if you have gaps, overlaps that can drain resources, or if you’ve overlooked an important area of expertise. After all, an ounce of prevention is worth a pound of cure.

Your Checklist


You’ll need someone to keep track of your expenses and invoices.  Whether that person is in-house and manages your accounts receivable/ accounts payable, or outsourced and sends monthly reports on your cash flow status, a bookkeeper is essential to any business’ operations. 

A great San Diego based resource for bookkeeping is BooXkeeping. This company, started by Max Emma provides bookkeeping services for small to medium-sized businesses. They are a virtual service that serves a variety of industries. 

Certified Public Accountant

Gone are the days of the once-a-year call to a CPA to file taxes.  With great power comes great tax complexity. A once a year conversation is not going to cut it.  You need a CPA who is invested in your holistic business financial health.  

Mid-sized CPA firms such as Encore Partners, and Eakes and Company provide financial insights and strategies beyond simple tax planning and preparation.  Finding a CPA who understands your industry and special situation is a great addition to your team and your financial wellness as a company. 

Payroll Provider

At a certain point, Quickbooks is too simple for your company’s payroll needs. Getting a great payroll provider sounds easy, but with the behemoths dominating the industry many business owners feel they’re just a number.  Payroll is crucial because, as much as you may work because of the love you have for the company, your employees work at least in large part because you pay them.  

Some San Diego resources for payroll include Coastal Payroll and PayrollHUB. Both provide payroll services and human capital management services to let you stay focused on running your business. 

Insurance Provider

Business insurance is complex, expensive, and consequential.  From cyber liability to the industry-specific coverage you may need if you transport goods or provide services across state lines or internationally, proper insurance coverage is essential. 

Finding an insurance company that specializes in commercial coverage and will reach out to you more often during renewal time is not that easy.  From health insurance to EPLI coverage, insurance is a large part of the benefits you’ll offer to employees, and the protection you need for your business. 

Consider a small to mid-sized firm, some we know of here in San Diego are:

  • Benchmark Commercial Insurance offers commercial and personal line insurance for business owners and individuals with complex structures. 
  • Morrison Insurance creates various insurance programs for small to midsize businesses to help you find the greatest value for your dollar. 
  • Competitive Edge specializes in high-risk and construction insurance. The founder, Brenda Jo, is passionate about believing that you are more than the history of your insurance claims 
  • SBMA Benefits provides affordable ACA compliant Minimum Essential Coverage for Applicable Large Employers.

Human Resources

Human resources… Aren’t all resources human resources?  When it comes to compliance, having Human Resources services in-house or fractionally can make the difference between a bad hire becoming a lasting issue and being a blip on your company radar.  

The right HR provider can partner with your company to create manuals, handbooks, and pieces of training to keep you compliant. They also assist in creating operational structures to support healthy company culture and more. 

San Diego HR resources we know are: 

  • Culture Works operationalizes your workforce’s culture by implementing systems, processes, leadership training, and a foster of culture alignment to aid in a smooth operations process. 
  • Possibilities Consulting has outsourced HR services through Ari Saul and additionally, they help develop inspirational leadership, intentional culture, and high-performance teams in the workplace. 


You don’t need an attorney until you need an attorney.  From employment law attorneys to civil litigation, finding the right lawyer when you need one will speed the time to resolution and protect you from unnecessary losses.  

Civil litigation attorneys Gupta Evans and Ayres and Employment law attorneys Tencer Sherman are reliable resources in the San Diego area. 

Protecting your intellectual property not only protects your ideas but can ensure that disgruntled ex-employees don’t take your business plan and implement it in a state with no non-compete clauses. Gary Eastman of Eastman IP is a resource here in San Diego.

At Milikowsky Tax Law, we’ve been entrepreneurs ourselves. We know first-hand about the challenges and the excitement of growing a business.  Regardless of your industry, there are structural elements that will help your company grow and manage the fluctuations of staffing, client success, and scaling more easily. 

Think we forgot something? Connect with us and share! 

Want to know when you might need a CPA vs a Tax Attorney? Read our article here


What Every Business Owner Needs to Know:

Vince B. EDD audit Case Story

We are grateful to our client, Vince B., for sharing his story of how we were able to help him weather an EDD audit. This audit could have closed his business and had far-reaching repercussions for his personal finances as well as business finances.

In 2020, Vince was hit with an EDD audit that threatened to not only shut down his business but impact his personal finances as well. Hear his story of how our expert team navigated his misclassification audit and brought down hundreds of thousands in fees down to about $6,000. His misclassification audit closed in 2021. 

Meet Vince in his testimonial below.

“My name is Vince Bindy and I’m a co-founder, co-owner of a behavioral health mental health facility in Orange County, California, and we’ve been operating efficiently for some years. And then we got hit with an EDD audit and to make a long story short, the EDD was trying to claim that all our therapists were actually employees. 

At the time it was quite shocking and we contacted some various attorneys and one attorney really just terrified myself and my business partner, Nick.

We came up with potential damages of theoretically several hundred thousand dollars. What could have been $300,000, $250,000, $400,000. We really didn’t know. And also, what we found out, much to our chagrin, is I guess a couple or three years ago, I don’t know for sure. 

The State of California passed a new law where if the corporation, for some reason, couldn’t pay all the back fees and penalties due to the EDD from an audit like this, they could come after us personally.

We called around, called around, interviewed three or four different attorneys. John Milikowsky’s law firm was one of the attorneys we interviewed. 

Fortunately, we picked John. 

All the attorneys sound good on the phone, right? When we first interviewed him, something about John felt right. He came across as very soothing and calm because we talked with a couple of other attorneys. And like I said, that one attorney really put the fear of God in us, times three. I mean, laying out all these potential scenarios. I guess that’s sometimes a sales technique to terrify somebody when you’re an attorney or other professions, and then getting them to sign up with you. 

John didn’t use that approach, more of a straightforward one.

We told him what this other attorney said. And he said, “Yeah, that could happen. But it’s very rare. I’ve never had that happen to me. It’s very remote.” So, I liked that soothing approach. He’s very experienced. He laid out all the cases he worked with in the past and dealt with firms similar to us in the medical field about our size. 

The third thing was just the way he was going to lay out the process. He just laid out the process. Here’s what we’re going to do first. Here’s what we’re going to do next. You’ll pay them a certain amount of money at this point and then kinda lay it out when the money will be due and kinda mapped out. 

A lot of the times you ask an attorney, roughly get me in the ballpark, what it’s going to cost and you never get an answer.

And John had no guarantees. You can never get a guarantee from an attorney obviously, but kinda he laid out a min-max of what it might cost, his legal fees. And I appreciated that as well. 

To make a long story short, that potential fear of having a debt of two, three, $400,000 got whittled down, negotiated by John’s legal firm down to, I believe, $6,000 in change. I could be off by a thousand bucks. It could have been five, could have been seven, I don’t remember. But when that happened, we were jumping for joy to tell you the truth. And so that’s why I’m doing this video. I’m extremely happy with the services.

And at the end of the day, results are all that matters in the way I view things and old John’s a great guy, but more importantly, he produced the results. And I got to tell you, that wasn’t even a goal. My goal with my partner, Nick, I said, “Nick, if John could get it below a hundred thousand dollars, I’d be happy at this point in time.” 

He got it down to 6,000 and change. So what more can I say?”

-Vince B. 

Vince’s audit was an EDD worker reclassification audit, something we are seeing more and more of in our practice in 2021. EDD is actively seeking 1099 contractor misclassification cases since the passage of AB-5 the Gig work bill in January 2020.  

The new ABCs of worker classification set stricter criteria for workers to be classified as contractors vs wage-earning W-2 employees.  In the case of this client, there was one worker who was misclassified and EDD sought to compel the company to reclassify ALL of their 1099s as W-2s.  

In cases like this, the advocacy of an experienced audit attorney can make the difference between a financially damaging penalty and a manageable penalty amount due.  While no one case can determine the outcome of any other, we do know that EDD’s audits are swift, decisive, and aggressive. 

Not sure what an EDD Benefit Audit is? Find out here

Do you know how to Respond to IRS Letter CP 2000

What is a CP 2000?

Watch our video below:

IRS sends audit letters to taxpayers when tax returns and reported data from employers or banks do not match. This specific letter is IRS letter CP 2000. It is not a formal audit letter notice. However, it does notify the taxpayer that the agency found a discrepancy, and asks if the taxpayer agrees or disagrees with the tax changes.

These letters are different and more complex because they’re correspondence audits. You are not meeting with an auditor face to face. Instead, you’re dealing with the audit through letters. Mail correspondence can be more challenging than explaining audit technicalities face to face.

Explaining audits on paper takes more effort than audits performed in person because the taxpayer receiving the letter needs to know the correct documents to provide, and what issue IRS is looking at. Advocacy plays a large role in these audits. 

IRS released YouTube videos and dedicated a frequently asked questions page to help walk through common CP 2000 questions for those who received the letter and have questions.

What Triggers IRS to Send a CP 2000 Letter? 

These letters originate because of a mismatch of information. At times, the mismatch is due to a simple but valid error or omission. For example, a taxpayer might have received $200,000 from a distribution from an IRA account, but forgot to report that on a tax return.

This causes IRS to look into the tax return because the distribution was reported by the organization and the investment company to IRS. This triggers IRS to view that the same Social Security Number reported income from a third party, which is valid, and a tax return that doesn’t reflect the income from the third party IRA. This in turn, triggers IRS to send the CP 2000 letter to ask why there was a discrepancy.

Other scenarios, such as reporting different numbers on W-2 income, can trigger an IRS CP 2000 letter. A sole proprietor with a merchant account who fails to report the correct amount of gross receipts can also receive the letter.

A proprietor can collect $1,000,000 in credit card payments, but only report $800,000 for a variety of reasons. Sometimes proprietors are not always collecting income. A merchant collecting credit card sales might run into chargebacks or refunds. 

These chargebacks and refunds are not included in the total number that the bank reports to IRS. Banks only report gross proceeds, not net. They’re not offsetting total income with returns- which can trigger the discrepancy.

What Do I Do if I Receive a CP 2000?

CP 2000 letters are sent in the mail by IRS. The agency gives 30 days to respond to the letter. If they do not receive a response, they will send a second letter called an IRS Notice CP3219A. IRS provides a phone number on the letter to assist taxpayers with any questions and explain further action required to settle discrepancies. 

You may receive a CP 2000 letter late because IRS is currently backlogged. If this occurs, look at the date at the top of the letter and calculate 30 days out to find when your response is due.

If you need more time, it’s possible to respond to the agency asking for a two or three-week extension. Remember to provide a specific date as to when you can provide requested records. Best practice when mailing correspondence with IRS is to send letters through certified mail.

Requesting an extension doesn’t guarantee the agency will grant the additional time. However, if IRS closes your case, you will be able to argue that you requested a time extension, and it was unreasonable for the IRS to close it. 

What Happens if I Don’t Respond to a CP 2000? 

Failure to respond to a second letter, or failure to provide correct information triggers an assessment by IRS. If this occurs, the taxpayer will need to petition the tax court. However, if you file a timely request, you can go to appeals. 

Should I Hire an Attorney? 

Depending on the case, your CPA can support you during the audit process. However, if the proposed taxes owed are high enough, consider hiring a tax attorney with experience dealing with IRS letter CP 2000.

An experienced attorney has the resources to understand how to navigate discrepancies while helping you explain the reasoning behind the differences in reported income. 

Curious about what else can trigger an IRS audit of your business? Read our article here

What is IRS letter CP 2000

CPA vs Tax Attorney: What’s the difference?

In some cases, it may be difficult to distinguish what your CPA is capable of helping you with and which tasks are better suited for a tax attorney. Both are experts when it comes to tax matters but in different ways. 

While your CPA is an expert at preparing and submitting your taxes correctly, you’ll need a tax attorney in the event that Internal Revenue Services (IRS) notices inconsistencies in your tax submissions or if you’re the subject of an audit. In any case, you’re best off having access to both experts. 

What does a CPA do? 

A Certified Public Accountant (CPA) has a significant educational background under their belt. They are required to have completed 150 hours or more of undergraduate educational studies before passing an extensive CPA examination. 

Additionally, they have to commit to 120 hours of continued education every 3 years. As such, they considered some of the highest level experts when it comes to handling tax preparation. A simple way to think of CPAs is that all CPAs are accountants, but not all accountants are CPAs. The process of becoming a CPA is more complex than an average accountant. 

A CPA’s services are not often used by any average taxpayer but instead are usually used in more complex cases. CPAs know how to abide by federal laws while still minimizing your tax liability and maximizing benefits. Developing a strong ongoing relationship with a CPA may suit your needs if you are looking to build a long-term tax plan and need support sticking to it. 

CPAs are often capable of providing various services to their clients in addition to tax preparation. Some additional services they may provide include the following: 

  • Financial record review
  • Maximizing deductions 
  • Business structuring 
  • Health insurance selection
  • General accounting

Many people choose to have a go-to CPA available for support on a regular basis. If this is not the case for you, you may choose to consult them when:

  • Filing your taxes
  • Completing an application for a loan
  • Completing an internal audit
  • When reviewing tax payments and balances

Their skills and expertise are best suited to assist you when handling these situations. 

What does a tax attorney do?

While a tax attorney is still an excellent resource to taxpayers, they serve a different set of needs than CPAs. While CPAs are technically qualified to represent you before a court in the event of an audit, a tax attorney is likely a better choice in situations where you may be involved with trouble with tax authorities. 

Similar to CPAs, tax attorneys have to complete an intensive educational path before qualifying to satisfy their role. After completing a bachelor’s degree, they must complete a Juris Doctor degree and study to take the bar exam for the state in which they intend to practice. Once they have passed the bar exam, their license must be kept up with continued ongoing education. On top of that, many tax attorneys choose to pursue a Master of Laws in Taxation to further their specialization in their field. 

Tax attorneys specialize in the legalities of tax payment and their services are most often called upon in defense cases when taxpayers are faced with audits from IRS, EDD, or other federal tax authorities. While tax attorneys may have slightly varying specialties, one thing most tax attorneys have in common is expertise in tax controversy and dispute resolution. 

One of the benefits of working with a tax attorney is that only tax attorneys have an attorney-client privilege that protects communication between a client and an attorney. This privilege can restrict IRS and California State tax agencies from discovering information provided to attorneys in confidence.

Tax attorneys fulfill various services for their clients as previously mentioned. The following include the various reasons you may need to consult a tax attorney: 

  • IRS tax audits 
  • Criminal tax defense 
  • Reporting ownership of foreign bank accounts and corporations 
  • International business transactions 
  • Tax disputes and IRS tax collection 

Who can represent your business during an SBA PPP Loan Forgiveness Appeal?

SBA has started giving loan forgiveness for businesses that used the PPP loans during the early stages of the pandemic. However, businesses deemed to have not used the funds as they were intended received loan forgiveness denials. 

If SBA denied your business’s loan forgiveness application, they will send an SBA Final Decision Letter in the mail. If you wish to appeal your forgiveness denial, you must reply and submit an under 20-page appeal 30 days before the date printed on the decision letter. Submission after the 30-day mark forfeits your appeal rights and will require you to repay the full PPP loan amount. 

Only three people can legally represent your business during an SBA PPP Loan Forgiveness Appeal:

  • An attorney
  • Shareholder owner
  • An officer

Those who are not legally entitled or allowed to represent businesses during an SBA appeal include: 

  • Certified Public Accountants (CPAs)
  • Lenders 
  • General Employees

An attorney is legally entitled and allowed to represent your business during the appeals process. They will be able to research why your application was denied, collect supporting evidence, and create the 20-page appeal for SBA.  

Final Thoughts

While CPAs and tax attorneys both work within a similar framework, their unique specialization equips them for varying roles. In some cases your business may only need to use the services of one or the other, however, in most cases, the two roles complement one another. While your CPA may be an excellent ongoing partner to assist with the day-to-day management and filing of your taxes, they may not be the best-suited partner in the event of trouble with tax authorities. 

Rather than challenging your CPA to attempt to manage tasks outside of their usual specialties, reach out to an experts attorney to assist with any legal tax concerns you may have. Curious about what you should be paying for a tax attorney? Read our article here explaining different instances when hiring an attorney may be worth your while. 


CPA vs Tax Attorney: What’s the difference?